Indian states outpace centre in spending, spend about 1.5 times more than central govt
New Delhi: A recent finance report highlights the significant financial activities of Indian states, which collectively spend about 1.5 times more than the central government.
Understanding their fiscal health is crucial, especially given the substantial expenditures on unconditional cash transfers and pension schemes. In FY25, nine states have allocated over 1 lakh crore rupees for unconditional cash transfer schemes aimed at women beneficiaries. These schemes account for 11 per cent of revenue receipts in Karnataka and 9 per cent in Maharashtra. Additionally, the central government’s decision to implement the Unified Pension Scheme (UPS) for its employees may require states opting for UPS to incur extra expenditure.
Post-COVID, states’ own revenue has rebounded to 2018-19 levels. In 2023-24, the SGST revenue to GDP ratio exceeded that of 2018-19, with SGST contributing about 40 per cent to states’ own tax revenue.
The Public Research Society (PRS) recently published its 9th edition of the annual report on state finances, shedding light on key issues and emerging trends in the fiscal health of Indian states. The Supreme Court’s July 2024 ruling upheld states’ power to tax mineral rights, potentially providing an additional revenue stream.
The report highlights several trends based on Budget Estimates for 2024-25. Eleven states have budgeted for a revenue deficit, necessitating borrowings for revenue expenditure, which includes salaries, pensions, and interest payments.
These items make up 52 per cent of states’ revenue receipts. States have budgeted 84 per cent of their total expenditure for revenue purposes and 16 per cent for capital outlay. States are expected to raise 58 per cent of their revenue receipts from own tax and non-tax sources, with SGST being the largest contributor at 44 per cent.
Between 2015-16 and 2022-23, states raised 11 per cent less revenue and spent 10 per cent less than budgeted. The average underspending on capital outlay was 21 per cent. The report’s data offers multiple insights and allows for a deeper analysis of individual states’ financial health. The findings underscore the importance of prudent fiscal management and the potential for states to enhance revenue through strategic taxation and efficient spending.
The full report is available for further reference, and PRS is open to detailed discussions on these findings. This comprehensive analysis is invaluable for policymakers, economists, and stakeholders interested in the financial dynamics of Indian states.
